Market participants were treated to another mostly ambiguous read on housing starts and permits Wednesday.
The data was lackluster, on balance, but not singularly bad. For the second straight month, a “clean” read was hard to come by.
Starts missed, and the prior two months were revised lower, which fits the overarching narrative of a cooling US housing market bedeviled by rapidly rising mortgage rates.
At 1.439 million (figure below), the annual rate was short of the 1.461 million consensus expected, but nowhere near the most pessimistic guesses from five-dozen economists polled.
The decline took the pace back near July’s level, which was the slowest since early 2021. Groundbreaking fell in three out of four regions, with new construction in the West diving almost 16%.
Single-family starts dropped to an 892,000 pace. It was the third month below a 1 million rate, and the sixth monthly drop in seven (figure below).
The rate of single-family starts is now the slowest since May of 2020.
On Tuesday, in color accompanying a tenth straight decline in homebuilder sentiment, NAHB chief economist Robert Dietz said this year will be the first since 2011 to see a decline for single-family starts. “Given expectations for ongoing elevated interest rates due to actions by the Federal Reserve, 2023 is forecasted to see additional single-family building declines as the housing contraction continues,” he added.
Completions rose last month, and permits managed to beat. The 1.564 million rate was ahead of estimates, but not by much. More importantly, single-family permits dropped 3% to the lowest in more than two years.
While there was nothing terribly distressing about Wednesday’s data, starts are almost guaranteed to keep falling. You’d be hard pressed to find anyone willing to suggest we’re anywhere close to the lows.
Lower prices beget stronger demand.
Looking at the chart – really just (so far) falling back to the longer term trend line, that had been rising rather steadily since 2009 until pandemic – induced distortions. Surely more correction coming, though am not at all convinced we’re heading for a 2006-9 replay.
Units under construction are at an all-time record. That’s single and multi family combined at 1.7MM. Single family alone is very high (800K vs it’s 2006 record of 1MM). For now, construction employment and materials look supported by this work-in-progress. Cyclically unhelpful for prices and rents.
Remember, while starts are interesting, most people already live somewhere and can stay put. For them costs can only rise and the total cost of shelter, especially for those in the lower 50% of income, are edging toward 40% of their budgets.